Basics of a Mortgage Loan

A mortgage loan is basically a loan to purchase a residential or commercial property. Mortgage loans usually involve large loan amounts with long repayment periods. If you did not know what a mortgage loan is, below are some of the mortgage loan basics.

Property

In a mortgage, a property is a physical commercial or private residence which is being financed through the mortgage loan. The ownership form varies from country to country.

Mortgage

A mortgage is the lender’s security interest in a property. It includes restrictions on the property’s usage and disposal. It may also entail home and mortgage insurance requirements.

Borrower

A borrower is a person or an entity with the interest in the ownership of the property. Once the contract is signed, the borrower has the obligation of servicing the loan.

Lender

A lender is a financial institution that sells and the loan to the borrower. A lender also collects the repayments from the borrower.

Principal

A principal is the initial size of the mortgage loan. During the servicing of the loan, part of the installment repays the principal amount.

Interest

Interest is the amount of money charged by lenders for the use of their money. Interest is usually paid by the borrower.

Foreclosure

The probability of the lender to repossess the property. For instance, the property is used as the collateral and if the borrower defaults the property can be repossessed.

Completion

The completion of the mortgage deed which marks the start of the mortgage.

Redemption

Happens when the borrower pays off the outstanding loan amount and the mortgage account closed.

These are some of the mortgage basics. It is important to read the mortgage terms and conditions before committing yourself. Mortgage loans are long-term commitments hence you should be careful before appending your signature to any form.